Williams advisor braces Mazeikiu for worst

  • 2006-07-26
  • Staff and wire reports
VILNIUS - A former U.S. ambassador has warned that the Mazeikiu Nafta refinery could have supply problems now that ownership is soon to be transferred to the Poles, though investors downplayed the scenario.

Speaking at a conference on EU-Russia energy relations in Tallinn, former U.S. Ambassador to Lithuania Keith Smith predicted that Mazeikiu Nafta, the only refinery in the Baltics, could have supply difficulties thanks to Russian disgruntlement now that Lithuania's largest enterprise is being purchased by PKN Orlen.
The ambassador said that during his three years in Lithuania he saw oil taps turned off on nine occasions to sway the decision on the ownership of Mazeikiu Nafta. He said that for three years Russia has not exported a single drop of crude through the Ventspils pipeline so as to pressure Latvia to hand control over the pipeline to an owner acceptable to Moscow.
"I foresee Mazeikiu Nafta experiencing big problems with oil supplies," Smith said.

He also recalled the role the Russian oil company Lukoil played in Lithuanian politics, including the election of Rolandas Paksas. Paksas was later impeached and removed from office for corruption and breaches of oath. Many Lithuanians were uneasy with his friendly relations with certain groups from Russia.
But Smith, who was ambassador in 1997-2000 and later on worked for two years as an adviser to the U.S. energy company Williams International, stated that there is obvious pressure to ensure that the Baltic states' only refinery is put in Russian hands.

After more than a year of negotiations with potential buyers, the Lithuanian government in June signed an agreement on the sale of the state's 30.66 percent stake in Mazeikiu Nafta to PKN Orlen, which has acquired another 53.7 percent from a Dutch subsidiary of Russia's Yukos. Kremlin insiders did not conceal their dissatisfaction with the sale, and private Russian producers have hinted that there may be more profitable supply routes than Mazeikiu Nafta for the export of crude.
Indeed, despite Russian oil companies' promises not to use crude supplies for exerting political pressure, supplies to the town of Mazeikiai have already begun to dwindle.

In order to alleviate fears of a sudden supply drought, PKN Orlen CEO Igor Chalupec was quoted as saying in the Veidas magazine last week that the Polish company, which possesses no crude production capabilities of its own, would secure stable supplies even if Russia cuts or disrupts supplies.
"Still, I believe that the economic prudence and a wish to cooperate will prevail eventually," he said. "Such cooperation would be beneficial for both parties, so I do not think that any hurdles would emerge. They could occur due to other problems 's for example, political ones. Yet we would have the alternative routes for the supply of crude even in that case."
As Chalupec explained, "Mazeikiu Nafta may be supplied with crude via the Butinge terminal successfully. I am absolutely sure that Mazeikiai would get enough crude."

Meanwhile, Fitch Ratings, an international rating agency, has maintained the Issue Default rating of Mazeikiu Nafta at B+ on Rating Watch Positive. The positive rating reflects the pending change of ownership of the oil complex.
Formally, however, PKN Orlen has not taken over the refinery. The company first needs the green light from the European Commission, which at the latest would happen in the first quarter of 2007.

"This is a formal process, which involves the submission of various information to the commission and proof that the merger of two companies would not lead to the dominance on relevant European markets. It could take several months," Chalupec said.
The deal had to be safeguarded against any attempts of Yukos' creditors to lodge a claim against it, he continued. "Furthermore, we are drawing a number of documents, including the fairness opinion, which should be handed over to the Dutch court so as to safeguard against the claims of Yukos' creditors in future," Chalupec noted.